Video: Speculating versus Investing

Richard Hemming
Richard Hemming, Editor of Under the Radar Report talks about the potential impact of a Trump trade levy; where to make money on ASX listed Small Cap Shares and Speculating versus Investing.

What do the potential tariffs on steel and aluminium mean for us?

The US potential to raise tariffs on steel and aluminium isn’t big on its own, although it does further increase pressure on higher interest rates, which we have been consistently mentioning.

We think that there is a low possibility that a country will escalate against this and it’s significant that China is not a big exporter of steel. There is a problem for Canada and Mexico, which makes NAFTA discussions interesting. It opens the door for this unravelling, which would be akin to Brexit.

In the small caps world it places more emphasis on buying stocks cheap and being patient, which is our mantra.

Are any Under the Radar stocks affected?

We spoke so Tony Dragicevich the CEO of Capral Aluminium recently, who was relatively sanguine about protectionism. Although the US significant consumer – 30% of world market; tariffs in US would primarily to support the smelters. The measures against extrusion – semi-finished aluminium billet not as great. This is what Capral produces for the domestic market.

If the LME aluminium price goes down it would be good for Capral; but increased dumping isn’t a positive.

We think that power prices are probably more important to Capral in the short-term

What are some of the takeouts from reporting season?

Value hunting or another way to describe it, stock picking, is the way to generate consistent strong returns. This is what happens when interest rates are on the rise.

Capral (CAA) and Gale Pacific (GAP) are two manufacturers where we have been seeing value; they’ve faced headwinds and got their cost bases down. Cheap for a reason, though.

We would rather be paying PE of 10x and dividend yield of 5% than PE of 25, which puts you in a momentum situation.

Is the market overall expensive?

Yes it is, as we mentioned in our last market run-down.

Stocks that are expensive get punished when they don’t meet expectations.

This is important to state, because in the market overall, we’re getting to the stage where there are a lot of go-go stocks trading at eye watering valuations that make you wonder whether it’s possible they have any chance of meeting expectations. And it’s clear that some of these “go-go stocks” are unravelling.

GetSwift; Big Un; Buddy Platform

We’re seeing a number of software/technology companies unravel. These always are a big risk from a financial stand point because they capitalise R&D; and there are low barriers to entry. There is the potential to become stranded.

The danger in the franchisee model is for all to see. Domino’s Pizza and Retail Food Group have been hit hard.

This all goes to show that at a certain point achieving growth over everything else doesn’t work

What is the difference between speculation and investing?

Some of the stocks we recommend are more speculative than others. At the speculative end, we’re referring to companies whose prospects are somewhat binary. They can double; or they can halve, in some cases. We just the risk return relationship here.

Then you have stocks that we regard as investment grade. These companies are producing dividends, or will be producing dividends in the not too distant future. You are investing in a business at a reasonable price and you are looking at maintaining that for at least a few years.

We don’t advise that subscribers have more than 12% of speculative stocks in their overall portfolio.

What’s coming up?

High Performing Dividend Stocks and Lithium and Gold Stocks
We’re finishing off the results season; we’re updating our high performing dividend portfolio; and we’ve got some reports on the lithium stocks and gold stocks coming up.

About

Products

Dashboard

WARNING:This publication is general information only, which means it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether a particular recommendation is appropriate for your needs before acting on it, and we recommend seeking advice from a financial adviser or stockbroker before making a decision.

DISCLAIMER:This publication has been prepared from a wide variety of sources, which Under the Radar Report Pty Ltd (UTRR), to the best of its knowledge and belief, considers accurate. You should make your own enquiries about the investments and we strongly suggest you seek advice before acting upon any recommendation. All information displayed in this publication is subject to change without notice. UTRR does not give any representation or warranty regarding the quality, accuracy, completeness or merchantability of the information or that it is fit for any purpose. The content in this publication has been published for information purposes only and any use of or reliance on the information in this publication is entirely at your own risk. To the maximum extent permitted by law, UTRR will not be liable to any party in contract, tort (including for negligence) or otherwise for any loss or damage arising either directly or indirectly as a result of any act or omission in reliance on, use of or inability to use any information displayed in this publication. Where liability cannot be excluded by law then, to the extent permissible by law, liability is limited to the resupply of the information or the reasonable cost of having the information resupplied. No part of this publication may be reproduced in any manner, and no further dissemination of this publication is permitted without the express written permission of Under the Radar Pty Ltd.